USDA Agricultural Outlook Forum

USDA Agricultural Trade Outlook - 2 December 2013

Fiscal 2014 agricultural exports are forecast at $137 billion, up $2.0 billion from the August forecast but $3.9 billion below fiscal 2013’s record high. Compared with the August forecast, grain and feed exports are forecast down $700 million, mostly due to lower unit values for wheat and certain feed products. The fiscal 2014 forecast for oilseed exports is up $2.4 billion on higher unit values and record early-season sales of soybeans and soybean meal. Cotton exports are forecast down $700 million this quarter as market reactions to expected changes in China’s reserve policy have resulted in lower prices. Horticultural exports are unchanged at a record $34.5 billion. The forecast for combined livestock, poultry, and dairy is raised $700 million to a record $31.8 billion on higher pork, dairy, and beef exports.

U.S. agricultural imports are forecast at a record $109.5 billion, down $3.7 billion from August, but $5.7 billion higher than in fiscal 2013. Increases in import value are expected for most products in 2014, with the largest gains in horticultural products and sugar and tropical products. The U.S. agricultural trade surplus is expected to fall by $9.6 billion in fiscal 2014, to $27.5 billion. This would be the smallest surplus since 2009.

World Growth Expected To Pick Up in 2014 as Dollar Sees Mild Depreciation

World income growth, estimated at 2.1 percent in 2013, is projected to rise to 2.8 percent in 2014. Trade growth is estimated at 2.5 percent in 2013, and is likely to double in 2014 to become a key factor in improved prospects for higher world growth. Asian GDP growth in 2013, at about 4 percent, will continue at the same pace in 2014. China and other emerging Asian economies, in pursuing policies of more consumer-oriented and sustainable growth, have become less export-growth dependent. Developing Asia is expected to see a rising share of domestic demand growth driven by consumer spending, boosted by rising wages. Housing growth will rise due to easier and sounder credit. Japan and China saw higher than expected growth in 2013, which will continue into 2014 with no acceleration. However, Korea, India, Thailand, and Malaysia can expect higher growth in 2014. Several economies in Asia are likely to slow in 2014, such as the storm-ravaged Philippines.

Higher Western Hemisphere, European, and African growth is expected in 2014, boosting world growth. In particular, North American growth is expected to move up in 2014 as the U.S. recovery accelerates in the last two quarters of 2013 and into next year. The pickup in Latin American growth in 2014 comes as higher growth prospects for Brazil, Chile, and Mexico offset slower growth prospects in Argentina. Europe is expected to continue out of its recession as growth moves from 2013's no growth to about 1.4 percent in 2014.

World trade growth is expected to accelerate in 2014 as the end of Europe's recession, coupled with a speed-up of North American, Japanese, Latin American, and African growth boost higher exports to and imports from those areas. The dollar is projected to depreciate by a weighted-average of 1.0 percent in 2014 on top of 2013's 4 percent depreciation, aiding North America's export prospects. The dollar’s fall in 2013 was the result of the boost in the euro as the likelihood of either a double dip European recession or an incipient breakup of the Eurozone fell sharply. As growth in Europe and Asia becomes more balanced in 2014, their currencies are expected to appreciate with an inflow of financial assets. The continued low-valued dollar and higher growth in Europe and Latin America will further support U.S. exports. The stronger U.S. economy in 2014 will lift U.S. import demand even as U.S. exports rise, providing a boost to world growth beyond North America.

Lower U.S. energy prices and more available credit at continued low interest rates make the U.S. agricultural trade outlook promising in 2014. Expanding U.S. energy supplies from natural gas and oil fields in 2014 means that fossil fuels will be available at a discount on domestic U.S. markets, albeit a smaller discount than in 2013. Farmers will benefit from lower fuel costs in 2014, facilitating higher agricultural output and export volumes.

The main, but low probability, downside risk to higher world growth in 2014 is a BRIC (Brazil, Russia, India, and China) growth slowdown.

Export Products

Fiscal year 2014 grain and feed exports are forecast at $28.1 billion, down $700 million from the August estimate due to lower values for wheat and certain feed products. Coarse grain exports are forecast at $8.3 billion, down slightly on lower unit values that more than offset sharply higher volumes. Corn volume is forecast at 36.0 million tons, up 3.5 million from August on a record crop and strong earlyseason sales. Feeds and fodders are down nearly $500 million as sharply lower corn prices boost corn feeding.

Fiscal 2014 wheat exports are forecast at $7.2 billion, a decrease of $500 million due to both lower value and volume.Competition with Canada is projected to intensify as it tries to move its record crop. Demand from both Brazil and China has declined for U.S. wheat. Good planting conditions in the Northern Hemisphere for next year’s crop, coupled with abundant global feed grain supplies, are expected to pressure prices downward. Rice exports are virtually unchanged as strong shipments to the Middle East are offset by weak shipments to Latin America.

Fiscal 2014 oilseed and product exports are forecast at $28.8 billion, up $2.4 billion from the August forecast following record early season-sales of soybeans and soybean meal. Improved U.S. soybean yields and larger production have boosted the outlook for exportable supplies. Unit values are also raised based on the strong demand and current price trends. The combined effect led to a $1.5 billion increase in soybeans and a $900 million rise in soybean meal export value. With improved global vegetable oil supplies lowering unit values, the U.S. soybean oil export forecast is lowered $130 million.

Fiscal 2014 cotton exports are forecast at $4.3 billion, down $700 million from the August estimate. Unit value is lowered as the market reacts to expected changes in China’s reserve policy. Export volume is forecast to remain at 2.3 million despite larger exportable supplies in competitors like India and Brazil.

Fiscal 2014 livestock, poultry, and dairy exports are raised $700 million to a record $31.8 billion as growth in pork, dairy, and beef offset slightly lower poultry. Pork is forecast nearly $400 million higher to $5.5 billion, mostly on higher prices, with strong demand expected from Mexico and some Asian markets. Dairy is raised $300 million to $5.9 billion on strong global prices and growing international demand, particularly from Asia. Beef is raised nearly $100 million to $5.0 billion, with higher prices due to strong global demand and tight other-exporter supplies. However, U.S. exports will be constrained by tight domestic supplies due to lower production. Poultry is forecast nearly $100 million lower to $6.4 billion on lower broiler meat prices.

The fiscal 2014 export forecast for horticultural products is unchanged at a record $34.5 billion. Fresh fruit and vegetable exports are forecast at $8.1 billion. Exports to Canada, Europe, and Japan are expected to continue expanding. Processed fruit and vegetable exports are forecast at $8.0 billion. Unit values for several processed products are expected to continue rising with demand from major markets. Whole and processed tree nuts are forecast at $7.8 billion.

Regional Exports

Agricultural exports in fiscal 2014 are at $137.0 billion, which is $3.9 billion below final fiscal 2013 exports of $140.9 billion. The forecast for fiscal 2014 is raised $2.0 billion from the August forecast, with most of the increase expected in China, Mexico, and the Philippines due to greater soybean and soybean meal demand.

Asia

Exports to China are forecast up $1.0 billion to $21.5 billion. The soybean export value is expected up on strong Chinese demand coupled with higher U.S. prices. Although the total forecast is raised from the initial fiscal 2014 forecast issued in August, exports are expected down from the fiscal 2013 record of $23.5 billion. Pork and dairy exports are expected up in fiscal 2014, but wheat shipments should fall as demand falls for imported feed wheat. Higher expected sorghum imports help offset demand for feed wheat. Cotton exports are also forecast to decline as expected changes in China’s reserve policy have depressed prices. China is forecast to be the second largest U.S. market just after Canada.

Japan is forecast up $100 million from the August forecast to $13.1 billion, primarily due to greater pork unit values. The Philippines is raised $200 million based on strong soybean meal sales. This new forecast is now even with the record fiscal 2013 exports of $2.4 billion.

Western Hemisphere

Mexico is forecast up $600 million to $18.6 billion. A sharply higher corn export volume will more than offset falling U.S. corn prices, as Mexican feed compounders substitute corn for sorghum. In addition, soybeans, pork, and dairy are also expected up.

Exports to Canada are forecast up $100 million based on higher pork prices. Its new forecast of $21.6 billion barely surpasses China to become the expected top U.S. market.

Brazil is forecast down $100 million to $700 million as a result of reduced demand for U.S. wheat as they shift to alternative suppliers.

Europe, Africa, and the Middle East

Exports to the EU are forecast up $100 million to $10.1 billion due to strong early season soybean meal sales and higher soybean meal prices.

Turkey is forecast down $100 million from the August forecast to $1.9 billion, due to lower cotton prices, as the market reacts to expected changes in China’s reserve policy.

Import Products

As world food commodity prices appear to have stabilized in recent months and the U.S. economy continues to recover, agricultural imports in fiscal 2014 are projected to rise to $109.5 billion, 5.4 percent higher than in fiscal 2013. This forecast is $3.5 billion lower than the August estimate, which assumed a more robust economic recovery in 2014.

In fiscal year 2013, despite the relatively weak recovery of the domestic economy, U.S. consumers continued their strong demand for imported foods, beverages, and other farm products and import volume rose 11 percent. However, lower prices for tropical commodities limited the increase in import value. Import volume averaged an 8.4-percent growth rate during fiscal 2011-13, compared to only 2.2 percent during the previous 4 years.

Real disposable income grew by an average of 1.8 percent in fiscal year 2013, close to 2012’s 1.3-percent growth. A somewhat stronger income outlook is expected heading into fiscal 2014. Nevertheless, given currently subdued farm commodity prices, which are also generally linked to lower energy prices (petroleum and natural gas), U.S. agricultural import value in 2014 is expected to grow moderately at a 5.4-percent rate, which largely represents projected import volume growth.

Tropical commodity prices in 2013 were mostly lower than in 2012 and even lower than in 2011. Prices for coffee, coconut oil, palm oil, rubber, and sugar are all moderately lower than in 2012, but significantly lower than in 2011. However, prices for cocoa beans and olive oil are now higher on average than in 2012, but still lower than in 2011. Food commodity prices were generally flat during recent months. Lower petroleum prices are helping to keep transport costs in check, which is a factor in holding import costs down. Also, the dollar’s exchange value has been stable over the past 2 years, which, to some extent, is preventing imported crude oil prices from rising again.

The new import projection of $109.5 billion in 2014 reflects gains from 2013 except for grains and oilseeds, whose U.S. production is expected up from last year. Import value projections were reduced for coffee, rubber, cocoa, sugar, oilseeds and oilmeal, and grains. Imports of feed grains, especially corn, are behind the sharp downward correction for bulk grains. Larger domestic production of corn underlies the smaller U.S. import projection for corn. Imports of other feed grains are largely unchanged from 2013. However, import estimates for wheat and rice are both higher than in 2013. U.S. imports of oilseeds and oilmeal are projected to be lower as domestic soybean production is anticipated higher in 2013/14.

The import estimate for total livestock and dairy products in 2014 is reduced by $500 million from the preceding forecast, with lower beef and dairy imports offsetting higher pork and cattle imports. The reduction stems from the $700- million cut in beef and veal imports as supplier volume is expected to decline sharply, by 140,000 tons. Still, the $3.9 billion forecast for beef is $220 million higher than the level in 2013. The import projection for pork is raised by $170 million as 17,000 more tons of the meat is expected, mostly from Canada. Relatively high hog prices and moderating feed costs are likely to increase farrowings in Canada next year, supporting higher exports by Canada. The dairy import forecast is cut as domestic milk production is expected to be larger.Feed prices are expected to moderate in 2014, which help boost herd size for dairy, meat, and poultry.

Imports of horticultural crops and products are projected to increase by $4 billion in 2014 as import demand for fresh fruits and vegetables, processed fruit, wine, and essential oils continue their healthy year-to-year growth. Indeed, all the other imported horticulture products show projected increases from 2013. Horticulture’s share of total imports is anticipated at 44 percent, up from 42 percent in 2013. Overall, import demand for horticulture products was up 6.6 percent in 2013, compared to only 2 percent for livestock and dairy imports. Beer imports fell in fiscal 2013 as three major foreign brewers relocated production facilities to the United States.

For tropical oils, import volume is up 13 percent from 2013, versus a 13-percent decline for other vegetable oils. Palm oil is in demand as the main replacement for trans fat in processed foods. Lower prices for these food oils and other tropical commodities—sugar, natural rubber, coffee, cocoa—were largely responsible for the minuscule 0.5-percent growth of U.S. farm imports in 2013. If these low prices remain stable through 2014, and import demand responds accordingly, the total import bill is anticipated to easily exceed 2013’s very modest expansion. As consumer spending keeps pace with recent income growth, imports are projected to increase at least moderately. Additionally, if U.S. interest rates rise next year and the dollar follows upward, import volume is expected to continue its strong growth.

Regional Imports

Imports from most supplying countries are expected to be higher in fiscal 2014 than in the year before, with Canada, Mexico, and the European Union accounting for most of the gains. Slightly lower imports are expected from India and Indonesia.

Among the suppliers of U.S. agricultural imports, the regions that have gained the most over the past decade are South Asia (India), Other Europe (Switzerland, Norway, the Balkan countries), the Former Soviet Union (Russia, Ukraine, Central Asian countries), North Africa (Tunisia, Morocco, Egypt), East and Southeast Asia, and South America. Although many of these countries started from a small base, they pursued export opportunities in the rich and diverse market of the United States. In Southeast Asia, Vietnam and the Philippines are fast on Malaysia’s trail. In South America, Argentina, Peru, and Ecuador are inching up on Colombia. These countries largely supply off-season horticulture crops stateside.

In terms of import volume growth, the top supplier countries to the United States since 2004 are Brazil, Argentina, Malaysia, Mexico, India, and China. With respect to imported food groups, the fastest growing in import value over the past decade (2003-2012) were vegetable oils, coffee and tea, tree nuts, cereals and bakery products, sugar and candy, cocoa and chocolate. These imports together accounted for a third of total U.S. food import value in fiscal 2012. The principal suppliers of these imported high-value products are the same countries that have dominated export growth to the United States in the past 10 years.